Petrobras

Brazil's pre-salt oil auction approved after initial injunction delay

The initial injunction argued that oil profits are a non-negotiable part of Brazilian heritage

José Eduardo Bernardes

Brasil de Fato | São Paulo (SP)

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October 27, 2017 1:20 PM

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The initial injunction argued that oil profits are a non-negotiable part of Brazilian heritage / Renato Moreira/Agência Petrobras

The Brazilian government on Friday overruled a federal judge's injunction ruling that had temporarily suspended the auction of Brazil's pre-salt oil reserves.

Brazilian Federal Judge Ricardo Sales issued an injunction on Thursday ordering the temporary suspension of eight blocks with more than 12 billion barrels of estimated oil reserves scheduled for Friday.

The injunction was initially issued by the Workers' Party (PT), which argued that Brazilian oil profits are a non-negotiable part of Brazilian heritage.

However, last November, in 2016, the Temer administration approved Congressional bill that eliminated the exclusive rights of Petroleo Brasileira (Petrobras), the state-owned oil company, to operate Brazil's pre-salt oil fields, a measure that civil society argue will undermine Brazilian sovereignty and energy interests.

Previously, Petrobras was the role of sole operator of the fields and the right to explore at least 30% of any area offered to the market.

As part of his ruling Judge Sales ordered the suspension of all the second – and third – round auctions organized by Brazilian oil industry regulator ANP. The auctions were to include the participation of foreign transnational corporations such as Exxon Chevron, Exxon Mobil and British Petroleum that are competing for an estimated 12 billion barrels of oil reserves.

Under the new regulatory framework for auctioning pre-salt oil reserves, Brazil had intended to offer production-sharing agreements in two bid rounds.

However, Cloviomar Cararine, an economist of the Department of Statistics and Economic Studies (Dieese), criticized the new regulations arguing that transnational corporations will be required to pay the government a lower percentage of the total profit generated from the oil revenues compared to the previous profit-sharing framework.

Brazil's previous offshore oil exploration framework was designed by former President Luiz Inacio da Silva of the Workers' Party and explicitly favors the state's interests via state-run oil company Petrobras.

Cararine described the decision to reduce the role of Petrobras in the Brazilian oil production as a strategy to grant greater leverage to multi-national corporations in future negotiations with regards to royalties.

The Brazilian ‘pre salt’ oil reserves were originally discovered in 2007 in the Santos Basin off the coast of Brazil and are believed to contain more than 90% of Brazil´s total oil reserves and is projected to generate $1 trillion in profit by 2020.

"In addition to the obvious issues of geo-politics, the extraction process of Brazilian pre-salt oil is easier and more profitable than starting a war, which is what happens in the Middle East," Cararine added.

The privatization of the pre-salt oil reserves forms part of Brazilian President Michel Temer’s aggressive pursuit of selling public assets without public consultation.

Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. Petrobras has historically maintained necessary control over Brazil's energy industry, controlling over 90 percent of the country's oil and natural gas production.